MORE TO INVESTING THAN MAKING MONEY?

There’s an ongoing debate about the goals of investing.

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Focus on making money vs. prioritizing environmental and social progress along with financial returns?

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I don’t think there’s anything wrong with pursuing non-financial goals, but I do question the impact of efforts so far. It appears many well intentions investors aren’t yet making their desired positive impact on the world, while also missing out on profits.

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In sports and life, success comes from a mix of talent, hard work, and luck. We can’t change our talent levels, but we can always work a little harder. And as Ben Franklin said, I absolutely believe in luck and I find that the harder I work, the more luck I have. Nothing is more essential for a person’s success than work ethic.

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One example is sustainability-linked debt or green paper. Companies offer different interest rates depending on whether they achieve target performance levels on environmental or social metrics. Emit less carbon or put more women on the board of directors and reduce the interest rate.

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On one hand, this seems like it could be a promising idea. It’s a commitment device for companies to live up to values they espouse. It’s also a nice way for ethically driven investors to feel that their investments are making the world a better place.

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On the other hand, it’s not so clear that the dollars at risk is large enough to really steer companies behaviors longer term. And in the short term, companies can boost their brand image.

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And why exactly should investors pay a premium to reward companies to do what they claim they want to do anyways?

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This whole practice feels more like virtue signaling than a driver for major change. If investors want to feel morally good about making money, that’s fine. And if companies can win good PR to do what they claim they should be doing anyways, that’s fine also.

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Only time will tell if these impact bonds will end up doing some good. Does this innovation that financializes social goals and public sentiment actually deliver what investors are asking for? I’ll be keeping an eye on this in the coming years.

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